Charter 2005 Annual Report Download - page 153

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
in which Charter Holdco does business, and (vi) future federal income tax benefits were realized through reductions in the
and state tax laws. Further, in the event of new capital deferred tax liabilities related to Charter’s investment in Charter
contributions to Charter Holdco, it is possible that the tax effects Holdco, as well as the deferred tax liabilities of certain of
of the Special Profit Allocations, Special Loss Allocations, Charter’s indirect corporate subsidiaries. In 2003, Charter
Regulatory Allocations and Curative Allocation Provisions will received tax loss allocations from Charter Holdco. Previously,
change significantly pursuant to the provisions of the income tax the tax losses had been allocated to Vulcan Cable and CII in
regulations or the terms of a contribution agreement with respect accordance with the Special Loss Allocations provided under
to such contribution. Such change could defer the actual tax the Charter Holdco limited liability company agreement. The
benefits to be derived by Charter with respect to the net tax Company does not expect to recognize a similar benefit related
losses allocated to it or accelerate the actual taxable income to to its investment in Charter Holdco after 2003 due to limitations
Charter with respect to the net tax profits allocated to it. As a on its ability to offset future tax benefits against the remaining
result, it is possible under certain circumstances, that Charter deferred tax liabilities. However, the actual tax provision
could receive future allocations of taxable income in excess of its calculation in future periods will be the result of current and
currently allocated tax deductions and available tax loss carryfor- future temporary differences, as well as future operating results.
wards. The ability to utilize net operating loss carryforwards is Current and deferred income tax benefit (expense) is as
potentially subject to certain limitations as discussed below. follows:
In addition, under their exchange agreement with Charter,
Vulcan Cable and CII may exchange some or all of their December 31,
membership units in Charter Holdco for Charter’s Class B 2005 2004 2003
common stock, be merged with Charter, or be acquired by Current expense:
Charter in a non-taxable reorganization. If such an exchange Federal income taxes $(2) $(2) $(1)
State income taxes (4) (4) (1)
were to take place prior to the date that the Special Profit
Current income tax expense (6) (6) (2)
Allocation provisions had fully offset the Special Loss Alloca-
Deferred benefit (expense):
tions, Vulcan Cable and CII could elect to cause Charter Holdco
Federal income taxes (95) 175 98
to make the remaining Special Profit Allocations to Vulcan State income taxes (14) 25 14
Cable and CII immediately prior to the consummation of the Deferred income tax benefit (expense) (109) 200 112
exchange. In the event Vulcan Cable and CII choose not to Total income benefit (expense) $ (115) $194 $110
make such election or to the extent such allocations are not
possible, Charter would then be allocated tax profits attributable The Company recorded the portion of the income tax
to the membership units received in such exchange pursuant to benefit associated with the adoption of EITF Topic D-108 as a
the Special Profit Allocation provisions. Mr. Allen has generally $91 million reduction of the cumulative effect of accounting
agreed to reimburse Charter for any incremental income taxes change on the accompanying statement of operations for the
that Charter would owe as a result of such an exchange and any year ended December 31, 2004.
resulting future Special Profit Allocations to Charter. The ability The Company’s effective tax rate differs from that derived
of Charter to utilize net operating loss carryforwards is by applying the applicable federal income tax rate of 35%, and
potentially subject to certain limitations as discussed below. If average state income tax rate of 5% for the years ended
Charter were to become subject to certain limitations (whether December 31, 2005, 2004 and 2003 as follows:
as a result of an exchange described above or otherwise), and as
a result were to owe taxes resulting from the Special Profit December 31,
Allocations, then Mr. Allen may not be obligated to reimburse 2005 2004 2003
Charter for such income taxes. Statutory federal income taxes $ 298 $ 1,288 $122
For the years ended December 31, 2005, 2004 and 2003, State income taxes, net of federal benefit 43 184 17
the Company recorded deferred income tax expense and Valuation allowance provided (456) (1,278) (29)
benefits as shown below. The income tax expense is recognized (115) 194 110
through increases in deferred tax liabilities related to our Less: cumulative effect of accounting change —(91) —
investment in Charter Holdco, as well as through current federal Income tax benefit (expense) $ (115) $ 103 $110
and state income tax expense and increases in the deferred tax
liabilities of certain of our indirect corporate subsidiaries. The
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